Chinese buyers face a severe shortage of spot Iranian crude as US blockade bites, driving up prices and forcing independent refiners to look toward alternative grades like Iraqi and Brazilian oil.
According to tracking data from Kpler, about 40 million barrels of Iranian crude remain positioned on vessels in Southeast Asian waters near Singapore.
However, market participants indicate that roughly 90% of this volume is already committed, leaving virtually no unallocated spot supplies for late-September delivery onward.
The sudden scarcity has caused a sharp turnaround in market pricing. Offers for Iranian Light have jumped to a premium of about $2 to $3.50 a barrel over Brent futures, marking an abrupt reversal from the deep discounts of around $3 a barrel seen just weeks prior, according to a Reuters report.
With total floating storage outside the blockade zone dropping from over 100 million barrels down to roughly 80 million barrels, the squeeze is heavily restricting flows to China's independent refiners.
"Chinese teapots will need to step up purchases of alternative feedstocks, such as Russian Urals crude or fuel oil, as ESPO supplies were sold out weeks ago, or risk cutting throughput in October when their inventories run thin," Muyu Xu, senior crude analyst at Kpler, noted in a social media post.
Faced with vanishing Iranian shipments and looming threats of even tougher US sanctions, Chinese independent refiners are increasingly turning toward alternative crude options.
Buyers have begun sourcing alternative medium-sour grades, such as Brazil's Lapa and Iraq's Basrah crude, to avoid potential disruptions as their domestic inventories run thin heading into October.
Meanwhile, market analysts warn that unless new supply routes open, regional refiners will face difficult choices regarding operational throughput as the chokehold on sanctioned barrels tightens.